Local Impact Investing: How You Can Get OnboardDana Colson
Impact investing is changing the world by going beyond traditional charity-driven work in favor of more sustainable, ethical alternatives that have measurable impacts on society. But what does local impact investing entail? And how can you get on board? This article strives to answer those questions.
What Is Local Impact Investing?
Impact investing, also known as social investment, refers to financial investments made with the intent of generating positive social and/or environmental impact alongside a financial return. Although it sounds like charity work, local impact investing is quite different from traditional forms of giving because it incorporates profit into the equation.
The rise in local impact investing reflects increasing support for sustainable activities that strengthen and keep money in the communities.
Local Impact Investing vs Socially Responsible Investing
Impact investment is frequently confused with socially responsible investing (SRI). Some investors, however, differentiate between the two, regarding SRI as essentially investing in firms dedicated to avoiding harmful social or environmental repercussions. Impact investment, on the other hand, takes a step further by pursuing positive outcomes.
Types of Impact Investing
Stocks, bonds, mutual funds, exchange-traded funds (ETFs), venture capital, and private equity are all examples of impact investments. Individuals and institutional investors such as hedge funds, pension funds, and non-profit organizations engage in impact investing.
Elements of Impact Investing
According to the GIIN, the following are the core characteristics of impact investing.
Impact investing requires an investor’s purpose to create a beneficial social or environmental impact through their investments.
Investment with expected return
Impact investments are anticipated to create a financial return on capital or, at the very least, a capital return.
Availability of return expectations and asset classes
Impact investments seek financial returns ranging from below market (often referred to as concessionary) to risk-adjusted market rate and can be made across asset classes such as cash equivalents, fixed income, venture capital, and private equity.
The investor’s commitment to assess and disclose the social and environmental performance and development of underlying investments is a characteristic of impact investing, guaranteeing openness and accountability while informing and expanding the sector.
Benefits of Impact Investing?
Impact investing is a great way to support local economies while also having a positive impact on society.
It’s also a great fit for the millennial generation, who are interested in seeking non-traditional investments that go beyond building their retirement funds.
Impact investing makes local impact possible because it enables an investor to have more of an impact through their investments. And local impact continues to grow as more people get involved with investment clubs and networks.
Who Can Do Local Impact Investing?
Anyone can be part of the local impact movement as long as you’re willing to take action. As a result, it has drawn a diverse range of investors, both individual and institutional.
- Fund Managers
- Diversified financial institutions/banks
- Foundations for private individuals
- Pension funds and insurance firms
- Family Offices
- Religious organizations
How Can I Get Onboard?
It’s great that you’re considering local impact investing as an option. And if you’re interested in getting more involved, here are a few steps to get you started.
1. Research and Familiarize with the Lingo
If you’re still not familiar with local impact investing and how it works, do your research and familiarize yourself with the impact arena in your area. Acquaint yourself with some terms and vocabulary you’re likely to encounter in the impact-investing world.
As you already know, there are several methods to participate in impact investing, ranging from index funds that screen out firms based on certain criteria to venture capital funds that support social entrepreneurs. Having a basic understanding of the language used to describe such investments can assist you in evaluating your options and determining what makes sense for you.
2. Get Involved with Local Impact Investment Networks or Coalitions
If you’re interested in local impact investing but don’t know where to start, consider becoming involved with an organization that provides support and guidance around area-wide impact investment options.
The Global Impact Investing Network (GIIN) is the leading global network of investors, companies, and nonprofits who are using market-based mechanisms to solve social and environmental problems at scale throughout the world. Local chapters provide opportunities for engagement in impact investor networks across North America. Facebook also has several impact investment groups you can join.
3. Go Local and Engage in Impact Investing Locally
If your local area has an impact investment network or coalition, consider attending a meeting sitting down with the members of the group and asking questions about how they got involved and what benefits impact investing offers to their communities.
If there isn’t an established investment network where you live, why not start one?
It’s not as difficult as it seems, especially if you have other community members that share your interest in making investments that yield both social and financial returns.
Once assembled, invite potential speakers to come to talk about different types of impact investments at future meetings, connecting local investors for possible collaboration.
4. Start Small and Start Immediately
There are many impact investing opportunities today. If you’ve decided to become an impact investor, it’s best if you take the plunge now.
For example, you may begin by allocating a modest portion of your investment portfolio to an index fund that is evaluated for environmental, social, and governance factors.
Also, you can ask local financial institutions or community foundations what impact investing possibilities they know about and might be willing to work with you on.
Ultimately, take the initiative by finding opportunities to invest locally in ways that align with your values and goals for your money. The more impact investment networks and coalitions form, the easier it becomes for local investors to find community-based opportunities.
In conclusion, local impact investing is a growing trend, and communities are starting to recognize the need for investments that supports businesses and people in the area. It presents an opportunity for investors to participate in local markets, while also being able to create positive social change within their communities at the same time.